Sunday, January 27, 2013

All Things Considered covers purported EB-5 investment into Barclays Center, gets much wrong

An All Things Considered article yesterday headlined Investing In Citizenship: For The Rich, A Road To The U.S. addressed the EB-5 immigrant investor program. There was more skepticism than usual in the piece, but it still badly mangled the Atlantic Yards angle. From the transcript:
First, let's show you how the program works. It's officially called an EB-5 visa. We let 10,000 people apply here if they have the cash. Last year, 7,600 took us up on the offer. If you want to see the kind of places where the money goes, you can turn on your TV set when the Brooklyn Nets are playing hoops.....
The team just moved to Brooklyn, and they needed a place to play, and the developer had a plan. Take a crummy neighborhood with abandoned railroad tracks, put in housing, offices and that glorious new stadium for the Nets, Barclays Center. Bloomberg News reports that more than $200 million of the loans to build the project came from foreigners who were using the investment to get into the United States. The business plan predicts that in the end, it will create more than 5,000 jobs. That's how it's supposed to work.
My comment (yet to be approved):
Weak reporting, NPR.

Re Brooklyn Nets/Barclays Center, NPR said, "Take a crummy neighborhood with abandoned railroad tracks." 
How about a gentrifying neighborhood, a "great piece of real estate" (to quote the then-CEO of developer Forest City Enterprises), and a working railyard for which the development rights were never put out for bid, even as land in NYC became so valuable it became feasible to build a deck for development over the yard.
EB-5 investments are supposed to be $1 million, but are cut in half to $500K if in a rural or high-unemployment neighborhood. The Barclays Center/Atlantic Yards project is *not* in a high-unemployment neighborhood. How'd they manage to finagle it? They gerrymandered the map. This was the subject of a front-page New York Times article.

And it's still considered OK.

As for the purported investment into the Barclays Center, the issue gets trickier: it was was misleadingly promoted in China and S. Korea as an investment *into* the arena. Developer Forest City Ratner told BusinessWeek the investment was going into infrastructure. Documents suggest that, instead, it was used significantly to refinance a land loan: replacing high-interest financing with low-interest financing.

How does that create jobs? Only on paper.

There are two issues here. First, is it OK to let rich foreigners buy their way into the country? That may rankle, but other countries do it, so the U.S. is competing. (But why not follow countries like Canada, which have plain vanilla programs in which immigrants invest directly into a government fund.)
Second, does the investment do more to create or serve to enrich the middlemen--the immigration agencies, lawyers, and, and deal packagers--as well as the entrepreneurs who hire them?
In many cases, it's the latter.

"The business plan [for the Barclays Center/Atlantic Yards investment] predicts that in the end, it will create more than 5,000 jobs."

Funny, that plan has never been made public. The calculations are based on "multipliers"--i.e. a certain investment is calculated to spur a certain number of jobs. Thing is, the immigrant investors get credit for *all* the jobs "created" by their investment. In the case of the Brooklyn arena project, the investors ($200M+) were supposed to get credit for more than $1 billion of investment.

But most of that $1 billion had already been committed, including public subsidies, and by no means was dependent on seed money from abroad.

Cities and states *love* EB-5. They're getting cheap financing for local developers/entrepreneurs at no cost to themselves. The cost is the *opportunity cost* of "selling" visas. The question is why our federal government sells them so cheaply, and with so little concern about whether the public truly benefits.

The EB-5 program deserves far more careful investigation.

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